In January, Prime Minister Viktor Orbán announced that from 2022 onwards, young Hungarians under the age of 25 will not have to pay personal income tax. According to the Central Statistical Office (KSH), in next January, around 270,000 youngsters will be affected by the policy. However, new research reveals that the number is closer to half a million Hungarians.
Orbán told public broadcaster Kossuth Radio back in January that the measure would cost the budget around 130-150 billion forints (EUR 363-420m). As the exact details of the exemption are yet to be revealed, it is hard to tell exactly how many young people in Hungary will be affected, and how much money could stay in their pockets on average.
However, according to GKI Gazdaságkutató Zrt., the previously estimated number of affected young people is based on employment data of the Central Statistical Office (KSH) by age group, which measures the annual average employment. At the same time, another indicator, tax authority NAV’s 2019 return data, says that the policy will affect 460,000 young people.
According to the economic research institute, one of the reasons for the large discrepancy is that a significant part of those under the age of 25 work as seasonal workers or intermittently, so they are only partially included in the Central Statistical Office’s statistics. “Of course, this also means that these young people can only be helped for a short time by the policy.”
According to the tax authority’s data, people under the age of 25 earned an average of 127,000 forints (EUR 353) – net 84,500 forints (EUR 235) – per month, so casual workers typical of this age group are pulling down the average. GKI’s research demonstrates that an average working person under the age of 25 will save an additional net income of 19,000 forints (EUR 53) per month due to the discount.
If we want to get a more accurate picture of the expected increase in earnings of full-time employees under the age of 25, then according to GKI, a comparison of public work, minimum wages, guaranteed minimum wages, and average wages, provides a good basis. According to this comparison public earners can take home 12,200 forints (EUR 34) more per month, those earning a minimum wage, 24,200 forints (EUR 67) more per month, those earning the guaranteed minimum wage, 31,600 forints (EUR 88) per month, and those employed on average wages, 58,600 forints (EUR 163) more from 2022 onwards with the new policy in effect.
The economic researcher concludes that even though all this means a significant net increase in earnings for those under the age of 25, it is only feasible if it is accepted by the employer.
“If an employer does not want to cause wage tension by enforcing the discount among employees, he can do so by reducing gross wages so that net earnings do not increase. In this case, they can also save part of the wage costs.”
According to GKI, another option is for the employer to freeze wages among young people and reduce working hours to the same gross wage. This may be particularly true for vulnerable workers. Another vital question is if an employee turns 25, how will he be able to replace the sudden drop in income.
Featured photo illustration by Attila Balázs/MTI